Air Canada's take-over of Canadian and subsequent merger has caused tough times for the country's regional operations
Brian Dunn/MONTREAL
Air Canada's purchase last year of Canadian Airlines International and subsequent merger of operations left a bad taste among the travelling public - many missed flights, faced long delays, got bumped or lost their luggage.
Feeling the heat from passengers and regulators alike, Air Canada president and chief executive officer Robert Milton appeared in a slick advertising campaign last summer, with a promise to give customers "the best possible service in the world" within 180 days. He claims to have solved most of the problems well before his self-imposed deadline.
Lost in the plethora of media horror stories was the fallout from the merger on feeder agreements with both Air Canada and Canadian and their regional partners. Prior to consolidation, Air Canada and Canadian had about 16 commercial agreements with smaller operators. Today, there are eight codeshare agreements of different forms in place.
The main reason for the reduction is over- capacity - particularly in western Canada, according to Rick Flynn, Halifax-based vice-president, business development for Air Canada Regional, the new entity bringing together all Air Canada's feeder partners. Flynn says, "The situation at the tier three level was not unlike what was happening at the mainline operations where you had too much capacity and overlapping service."
One of the first casualties was Alberta Citylink of Medicine Hat, Alberta, which was flying for Air Canada subsidiary Air BC when its contract was cancelled last April. The feeder operated four BAe Jetstreams on lease from Air BC, but is now down to one and has laid off 50 employees. Today the company is strictly in the charter, sales and training business under its original Bar-XH Air name.
President Les Little is optimistic, however, about future opportunities to get back into scheduled service following a shakeout of the Air Canada and Canadian merger. "I would also love to set up some commercial tie with WestJet," Little says.
Pacific Coastal Airlines of Vancouver was providing service to Canadian Regional Airlines, but was dropped after Air Canada took over Canadian Airlines. It had purchased three Shorts 360 aircraft specifically to fly the routes designated to it by Canadian. All codeshare flights were transferred to Air BC after its contract with Canadian was cancelled and Pacific Coastal is suing Air Canada for breach of contract.
The company continues to operate six 360s, but was forced to lay off about 35 of its 300 employees during the slow winter period. It has established some commercial agreements with Air Transat, Canada 3000 and Royal Airlines to carry passengers from Victoria to Vancouver. It has a similar agreement with British Airways and is displayed as the airline's connector between the two cities.
Cancelled agreements
"Our agreement with Canadian represented about 30% of our business and these new agreements don't represent anything near that," says Pacific Coastal's chief executive Daryl Smith.
Sunwest Home Aviation of Calgary also took legal action against Air Canada after its codesharing agreement with Canadian was cancelled. It had ordered four Fairchild Metro 23 aircraft to meet expanding route requirements and two had been delivered when Air Canada took over Canadian. Sunwest had been providing a wet-lease Metro 23 to Canadian since 1993, but entered into a codesharing and risk-sharing agreement with the airline in 1999 before it all came apart five months later.
Although its agreement with Canadian only represented about 15% of its business, Sunwest was financially on the hook for two Metro 23s, having cancelled the two others on order.
"We looked at various options such as carrying on, on our own, but there was nobody to connect to," says Mark Eberl, the company's managing director. "We looked at doing something similar with US carriers, but that also didn't work."
Eberl even contacted WestJet, but it was too busy building its own route structure to show much interest. "We don't fit their profile, because their clientele would save money by driving to Calgary to catch a flight rather than hitch a ride on one of our aircraft."
Eberl says the pain of "being dropped like a hot potato" by Air Canada has been eased slightly by the booming oil business, the primary focus of his charter operations.
New brand
Meanwhile, Air Canada is busy uniting its regional carriers into a single brand whose name and logo is still under development, according to Flynn. The plan is to launch the new brand by early autumn as part of a company-wide restructuring that has seen both the airline's Aeroplan loyalty programme and its technical services operation spun off into separate units.
The regionals - Air BC, Air Nova, Air Ontario and Canadian Regional Airlines, the former Canadian Airlines regional feeder - have merged to become a wholly owned subsidiary of Air Canada. The combined entity has 5,000 employees and 132 aircraft, half of which are Bombardier Dash 8-100s. The rest of the fleet consists of 32 Fokker F28-1000s, 19 Dash 8-300s, 10 British Aerospace 146s and five Raytheon Beech 1900Ds.
Plans to expand or modernise the fleet are on hold as part of Air Canada's zero growth policy this year. And the different regionals must create a common bargaining unit for the entire fleet before moving ahead.
"We're dealing with more complexities now than with the Air Canada and Canadian merger, because there are over 30 different agreements in place," says Flynn. "It's like a moving target with no set deadline, but we want to get an agreement in place as soon as possible so we can move forward with fleet renewal and better labour and customer relations."
The regional airline's scope clause is extremely rigid as far as jet aircraft are concerned and is tied to the growth formula at the flagship carrier, which has a fleet of 239 aircraft, including 25 Bombardier CRJ100s. As long as the mainline fleet stays at 239 aircraft, the regional division can continue to operate its jet aircraft. The scope clause restricts the number of jets, the size of the aircraft, the rate of transfer from Air Canada and the relative number of available seat miles that can be flown by the regional carrier. In addition, the carrier is limited to 55-seat and 80-seat turboprop aircraft. The number of jets it can operate is based on a floor of 39 jets, including the 10 BAe 146s, with additions possible only if Air Canada adds aircraft of 100 seats plus.
Opportunities
The F28s are to be replaced by the CRJs as long as new jet aircraft are introduced to the mainline fleet to replace them. Since Air Canada announced no growth this year, however, the F28s can only be replaced by turboprops.
The eventual fleet renewal could lead to new opportunities for Air Canada in the regional carrier market, says Flynn, noting that some of the partners have been approached to look at several different business arrangements.
"With our regional expertise, we are actively seeking out opportunities for our excess capacity, notably the F28s, whether on a training basis or equity partnership with another carrier. It was never part of our business plan up to now, but it has been put on the agenda to research it further."
Source: Flight International
